ULIP - Unit Linked Insurance Plan

Decide Insurance Objectives

One should first decide the insurance objectives and then select a ULIP plan that fulfils them. If one is young, current as well as future family requirements need to be considered because the insurance cover should be adequate if something happens to the insured. Family planning, i.e. the number of children one plans to have is an important consideration. It is imperative to understand that ULIP is a long-term investment product. Therefore, one should be clear about the investment and insurance objectives when putting money in a unit linked insurance plan to get the maximum benefit from the investment.

Decide Investment Goals

Investment goals are extremely important. One should spend sufficient time and think before in deciding these goals. This exercise, if done well, makes the process of choosing ULIPs easy. Investment goals may vary from having a corpus for the higher education requirements of the children after some years to having sizeable funds for the child’s marriage. They may also include having the requisite amount of money for post-retirement needs. Utmost importance should be given to one’s investment goals. Once these goals have been decided, one can look for ULIPs with their benefits which fulfil the goals adequately.

Compare ULIPs

Every ULIP has its own set of features and benefits. A thorough comparison is must to choose one that is best for one’s individual requirements. The comparison can be done in the traditional offline way or online using one of the many online insurance comparison portals. The websites rank and compare plans of different insurance companies on parameters such as sum assured value, policy term, different charges and bring to the fore, the many differences in ULIP plans.

The investor can also make use of the ULIP Calculator to calculate the returns on the investment to make a well-informed and wise decision.

Flexibility

Yet another factor that is to be taken into consideration while choosing a ULIP plan is the flexibility that is offered by the intended unit-linked plan. Here are two things that the investor must take into account to compare ULIP plans on the parameters of flexibility:

• Policy Tenure Flexibility: Many ULIP plans are long-term; resultantly, they tag along with a lock-in period of 5 years. Before investing, investors should analyze the investment horizon. Based on the intended period of the investment, they should pick the best ULIP from a variety of plans available at their disposal.

• Investment Flexibility: The unit-linked insurance plan allows the policyholders to pick the investment options even before investing in their intended unit-linked insurance plans. Basis of the risk appetite the investors can choose from hybrid, equity, or debt ULIP plans.

Evaluate Risk Profile and Financial Stability

It is important to appraise one’s own your risk profile and financial stability before choosing a ULIP plan. Younger people who typically have higher risk appetite can go in for plans which are more equity focussed to the extent of 100% equity allocation. Those people for whom financial stability is of prime importance will do well with a plan that primarily invests in debt instruments which provide stability albeit with limited returns.

Understand Different Charges Levied

While choosing a ULIP plan from the best ULIP plans available, understand the charges well. These include initial charges, premium allocation fee, fund management fee, surrender charges, mortality charges, and administration and service charges. Proper information and knowledge about charges helps to filter and choose the right ULIP plan.

Be Well-Versed with the Features and Benefits of a ULIP Plan

Every ULIP plan is different. Each plan has distinct features and benefits. Having a proper understanding of the pros and cons of each plan makes the decision to choose a unit linked insurance plan easy. One is able to find a better fit based on personal requirements if the characteristics are understood well.

Check the Performance of the Plan

Finding out the performance of a ULIP plan under consideration is a good idea. One can refer to the performance of last three to four years. It gives a fair idea about returns that one can expect from the plan. The returns should also be compared to benchmark indices like the Nifty of the NSE and the Sensex of the BSE.

Solvency Ratio

The solvency ratio of an insurance company shows that whether the company will be able to honor its claims in the future or not. As per the IRDA guidelines, the insurance company must have a solvency ratio of at least 1.5.

Claim Settlement Ratio

Performance of ULIP Funds

Investment Strategies Offered

Market-linked Returns

ULIP plans present an opportunity to earn market linked returns. A part of the premium paid in a ULIP plan in invested in funds which invest in different market instruments including debt and equity in varying proportions. The policyholder stands a chance to earn returns based on the market. Investors can use the data such as the ULIP NAV to keep a tab on returns and ensure they stay invested in the best ULIP plans.

Investment and Insurance Benefits

Unit Linked Insurance Plan offers the triple benefits of investment, life cover, and tax savings. Meaning that the investor gets to benefit from a comprehensive life cover based on his/her preferences and budget and reap market-linked returns on his/her investment.

Death Benefits

A unit-linked plan offers death benefits in case of the death of the insured during the policy term. While the death benefits are catered to as SA together with the value of the fund, benefits may differ based on the cause of the demise of the insured.

Maturity Benefits

A ULIP plan also comes packed with maturity benefits in case the policyholder endures the maturity period of the plan. Usually, maturity benefits are catered to the insured as the sum of the value of the fund. Nevertheless, some insurance companies may cater to add-on benefits based on the terms and conditions.

Long-term Investment Benefits

A ULIP plan is one of the most sought-after investment instruments for the ones who are seeking to earn maximum returns on the investments they make in the long-term. It is vital to understand that the market volatility and fluctuations may have an impact on the returns in the short-term. Instead, keeping the investment for a longer period makes it easy for the investors to deal with the market volatility and earn a high rate of return on the investment. A unit-linked insurance plan allows for long-term investments and makes it simpler for the investors to reap the maximum returns on the investments.

Withdrawal Benefits

Tax Deductions Benefits

They Help Avoid the Everyday Hassle of Managing Stocks

One can invest in equity based market funds which offer a higher rate of return as compared to debt funds. In addition to higher returns, one does not have to worry about monitoring the stocks every day. The insurance company and its fund managers take care of that. They also bring to the table, expertise in fund management. Policyholders can also easily keep a tab on their portfolio with simple tools such as the ULIP NAV.

Multiple Fund Options to Choose From

ULIPs prove multiple fund options at ones disposal. One can choose the type of fund where the premiums will be invested. These can be fully debt or equity or a combination of the two in varying ratios. Looking the historical returns over the years as well as the ULIP NAV will make it easier to understand which the best ULIP plans are. Depending on one’s risk taking ability, changing life and financial situation, one may choose to switch the fund to best adjust to the new scenario. Equity focused funds are apt for people with higher risk appetite while debt focused funds are more suitable for risk-averse people who want guaranteed returns.

Transparency

One of the plus points of a ULIP plan is that it is an extremely transparent financial product. Unlike traditional plans where no information is shared with the policyholder, one is provided information about all the charges levied. From the easy to understand ULIP NAV to the historical returns, the numbers help pick the best ULIP plans easily. In addition, one clearly knows where the current account stands. ULIPs

Liquidity

ULIPs are a fairly liquid investment product. They offer partial withdrawal of money to meet unpredictable events and emergencies. Also, the ULIP NAV of each fund is generally displayed on the website of the insurance company. Checking the ULIP NAV numbers will help to easily align the investment and insurance cover with the overall needs.

Low Surrender Charges

Surrender charges are charges that one has to pay in case one is surrendering a policy. If one finds oneself in a situation where one is stuck with a plan that is no more suitable, one can bear the surrender charges and rid oneself of such a policy. The surrender charges are unbelievably high in case of traditional plans leaving one with only a small portion of money invested post exit. However, they are reasonable in the case of ULIPs.

People with Medium to Long Term Investment Horizon

Unit Linked Insurance Plans are suitable for people who wish to invest in long-term investments. To get the best returns from ULIPs, one should invest in medium to lifelong investment horizons. In any case, they come with a compulsory lock-in period of 5 years. If one wants to create a corpus for his or her child’s higher education requirements or the child’s marriage expenditure, a unit linked insurance plan is a good choice due to its long-term outlook. Individuals can track the simple details such as the ULIP NAV, the total value of the fund, the equity-debt allocation to find the best ULIP plan for themselves.

Hands-On Investors

ULIP plans are most suited for individuals who like to track their investments closely. Since each insurance company provides the ULIP NAV for each of its unit linked insurance plans on its site, people can easily determine which the best ULIP plan for their needs is. Moreover, with the flexibility of switching between debt, equity and balanced funds with varying risk-return profiles, hands-on informed investors will find ULIPs the best investment plan as they can keep close tabs on their investment and make changes based on how the market is performing. The fact that these ULIP plans offer insurance cover also is an added bonus.

Investors across Different Life Stages

ULIP plans are ideal for all kinds of investors at different stages in life as there are ULIP plans available depending on individual requirements and situations.

The need for protection is low for single people who have just started their careers. Their need for wealth creation and accumulation however is high; therefore, they can meet such needs by choosing a ULIP plan with low death benefit and allocating in equity-focused investment funds. Keeping track of the ULIP NAV will further help them maximise returns by choosing the best ULIP plans for themselves.

Someone who is married but has no children has medium protection needs but has a high need for wealth creation. Such individuals can opt for a ULIP plan with higher death benefit and choose a growth or balanced investment fund for wealth creation.

For married individuals who are also parents, the need for protection is high, as is the need for asset creation to save for children. They can achieve this by choosing a ULIP plan with increased death benefit and choose riders for enhanced protection in addition to going for balanced funds for asset creation. Checking the ULIP NAV on a regular basis will help them optimise their fund allocation through the years.

People who are well settled in their jobs and have school going children have high protection as well as wealth creation needs. Their need for liquidity is also high to meet their child’s requirements. It is most advisable to go for a ULIP plan which allows partial withdrawals to meet such liquidity requirements.

The need for protection is in the medium range for middle-aged individuals whose children are ready to pursue higher education or plan to set up a business or plan to get married. They require lump sum money to fulfil such responsibilities and this can be achieved by ULIP plans allowing partial withdrawals.

People who are nearing retirement, whose children are independent, have low protection needs. They require safe accumulation of funds for post-retirement needs. Such individuals can opt for debt-oriented funds and lower the death benefit of their ULIP plan. These people should opt for the best ULIP plan for themselves that will give them regular returns without them having to worry about the ULIP NAV.

Policy Administration Charges

These charges are deducted regularly for the recovery of expenses borne by the insurance company for maintaining a life insurance policy.

Surrender Charges

These charges refer to the deduction for full or partial encashment of premature units subject to the policy documents. These charges are levied as a percentage of the fund value or as a percentage of the premium

Mortality Charges

The expenses, namely mortality charges are borne by the insurer to provide a life cover to insured, which vary with the age and sum assured of the policy. These charges are deducted on a monthly basis.

Fund Management Charges

The aggregated sum through ULIP funds is invested in equity instruments and debt. The insurer bears these charges for fund management, which vary with both fund and plan. The amount is subject to deduction calculating the net asset value or NAV.

Fund Switching Charges

ULIP plans enable you to invest your hard-earned money in different fund options that further have multiple debts equity exposure as well as provide you with the option to switch between different funds for which your insurance company will charge the switching fee. Most of the policies provide few free switches every year.

Discontinuance Charges

On premature discontinuation of a plan within lock-in period, the insurer deducts a small fee. Since these charges are preset by IRDA, these are the same for almost all policies.

In ULIP, premiums the investors pay are invested in debt and equity instruments, chosen by them, after deducting allocation and other charges. The value of each fund is computed by dividing total value of the fund’s investment by the total number of units.

Partial Withdrawal Charges

The policyholder can carry out lump sum withdrawals from the fund after the policy lapses and subject to the pre-determined conditions. Nevertheless, the partial withdrawals attract charges, as specified in the respective policy document.

ULIP NAV, in everyday terminology, refers to the Net Asset Value (NAV) of each unit of the ULIP fund on a particular day. The insurance companies generally display this NAV of each fund on their websites under the relevant section.

In ULIP, premiums you pay are invested in debt and equity instruments, chosen by you, after deducting allocation and other charges. The value of each fund is computed by dividing total value of the fund’s investment by the total number of units.

Myth 2: ULIPs are risky financial instruments

Reality: Another myth is that a ULIP plan is riskier investment product as it only invests in the quity market. This is absolutely not true. For anyone wanting to know what is ULIP offering, a ULIP plan gives the option of investing in debt, equity or a mixture of debt and equity as per the wishes of the policyholder. Depending on the type of risk one can take, different funds can be selected with different objectives. Aggressive funds which primarily invest in equity are apt for high risk-takers while conservative funds which are debt-oriented are more suited for risk-averse people. There is also the option of a balanced fund which is a mix of equity and debt. A ULIP plan also gives the option of switching between funds as per change in personal conditions, change in risk appetite, etc.

Myth 3: ULIPs do not allow investment of surplus funds

Reality: ULIPs do allow investment of surplus funds. Surplus funds can be added as per availability to a ULIP with a lower premium. Top-up premiums can be paid any time during the tenure of the existing ULIP policy and they enjoy the same tax benefits as regular premiums.

Myth 4: ULIPs allow continuation

Reality: People with the query ‘What is ULIP?’ have been confused and often misled into believing that ULIPs cannot be discontinued at all. Once can discontinue a ULIP plan after minimum 5 years of lock-in period without payment of any surrender charges.

Myth 5: Market volatility reduces life cover

Reality: There is also this confusion in the minds of consumers that the life cover under a ULIP decreases with market volatility. However, this is not true. The life cover remains unaffected with the rise and fall of stock markets. In case the insured dies during the policy term, ULIPs pay either the complete life cover or the fund value whichever is higher.

Myth 6: Health and accident cover is not provided in ULIPs

Reality: This again is completely untrue. A ULIP plan offers policyholders the twin benefits of insurance and investment. In addition, a ULIP plan has many optional rider options like other insurance products. Common riders are Accidental Death Benefit, Family Income Benefit, Hospital Cash Benefit, Waiver of Premium, etc. Additional cash requirements in case of emergencies can be taken care of through partial withdrawals. There may be some restrictions on clubbing two optional riders together but investors can always get the best ULIP plan with a suitable ULIP NAV for themselves.

Myth 7: ULIPs offer low returns

Reality: This again is a false notion prevalent among many people. The fact is that if money is invested judiciously in different funds with varying degree of exposure to equity and debt markets, investors stand a chance to lock in good returns upon maturity. The choice for funds, timely switching, redirection of funds or premiums, all ensure that one’s fund growth is healthy. Another thing to understand is that ULIPs are long term investment vehicles. With disciplined investing, they give attractive returns over the long term in addition to a life cover. All policyholders have to do is to keep a track of the ULIP NAV to get a policy that suits their needs. They can also opt for a different fund allocation that gives better returns after checking the ULIP NAV.

Bajaj Allianz Life Insurance Company Limited

Established in 2001, Bajaj Allianz Life Insurance Company is a joint venture between Allianz SE – one of the leading insurance companies of the world and Bajaj Finserv Limited.

• Bajaj Allianz Principal Gain: This is an individual, unit-linked non-participating endowment plan that offers the option of limited as well as a regular premium payment. Additionally, Bajaj Allianz Principal Gain plan offers guaranteed loyalty additions at maturity and allows its investor to receive maturity benefit in instalments via the settlement option.

• Bajaj Allianz Fortune Gain: This non-participating, individual, single premium unit linked endowment plan offers 99.5% premium allocation for a single premium of Rs. 10 lakh and above. The systematic switching option helps manage investments better. It allows loyalty additions of 3% of the single premium depending on the single premium amount and chosen policy term.

• Bajaj Allianz Future Gain: It is a unit linked endowment plan that provides maximum premium allocation. There is a choice of two investment portfolio strategies, viz. the Investor Selectable Portfolio Strategy and Wheel of Life Portfolio Strategy. The plan offers seven funds to choose from for the investor.

Pramerica Life Insurance Company Limited

Pramerica Life Insurance, is a joint venture between Prudential International Insurance Holdings Limited (PIIH), a wholly-owned subsidiary of Prudential Financial Inc. and Investments Limited (DIL) a fully-owned subsidiary of Dewan Housing Finance Corporation Limited – one of the largest housing finance firms in India (2^nd largest in the private sector).

• Pramerica Smart Life Wealth Plus: This non-participating unit linked insurance plan rewards policyholders with Persistency Units for continuing their policy. These are equivalent to 1% of the average fund value. The minimum age to avail the policy is 8 years and the maximum age at the time of entry is 55 years. 75 years is the maximum age at maturity.

Edelweiss Tokio Life Insurance

Edelweiss Tokio Life led its foundation stone in the year 2011. It is a joint venture between one of the biggest and oldest insurance companies – Tokio Marine and one of the popular financial services firm – Edelweiss Financial Services.

• Edelweiss Tokio Wealth Accumulation: It is a non-participating unit linked insurance plan offering customized solutions to meet the wealth accumulation requirements of policyholders. It has a simple charge structure and offers policyholders a choice of multiple fund options to grow their investments. The plan also provides easy access to funds to the policyholders by way of loans and partial withdrawals.

• Edelweiss Tokio Wealth Enhancement Ace: This non-participating unit linked life insurance plan comes with low allocation charges and flexible payment options. In case of death, the nominee of the policyholder receives the higher of the fund value or sum assured amount or 105% of the total premiums paid.

Exide Life Insurance Company Limited

Headquartered at Bengaluru, Exide Life Insurance Company was founded in 2001-02. This is a profitable and established life insurance company serving over 15 Lakh customers and managing assets of more than Rs. 18,381 Crore Asset Under Management.

Exide Life Wealth Maxima: This is a unit linked life insurance plan can be taken for 10, 15 or 20 years.

Key reasons to buy this plan

• 3 plan options to suit your life stage needs
• Comprehensive life cover
• 3 investment strategies to suit your risk appetite

Exide Life Wealth Elite: This unit linked plan offers a choice of six different funds to invest. The policy tenure can range from 15 years to 30 years.

Key reasons to buy this plan

• Choose from 8 fund options
• Investment Strategy
• Comprehensive Death benefit

Future Generali India Life Insurance Company Limited

Future Generali India Life Insurance Company came into existence in 2008. Operational with 104 branches, Future Generali is a joint venture between Generali Group, which is an international insurance group featuring in top 50 smartest companies in the world (MIT technology review 2015), Future Group – a pioneer retailer of India, and the Industrial Investment Trust Limited (IITL) – one of the leading investment companies.

• Future Generali Pramukh Nivesh: This is a single premium unit linked insurance plan i.e. it is available with a one-time lump sum premium payment option only. With an option of six different funds, one can choose to invest in a fund that matched one’s risk appetite. While the minimum premium amount stands at Rs. 50,000, there is no limit on the maximum premium.

HDFC Standard Life Insurance Company

HDFC Life offers a wide range of group and individual insurance products meeting various need for different life stages of the customers. It commenced its operations in 2000 and is a joint venture between Standard Life Aberdeen – an international investment firm and HDFC Limited – a leading housing finance company.

HDFC Life Click2Invest ULIP: The highlight of this online unit linked insurance plan is that it comes with zero policy allocation and zero policy administration charges. It gives a choice of as high as eight fund options to invest money in as per one’s risk taking capability. The plan allows four free switches every year. Partial withdrawals are also allowed after 5 years of taking the policy.

IndiaFirst Life Insurance

Headquartered at Mumbai, IndiaFirst came into existence in 2009. It is a joint venture between Andhra Bank and Bank of Baroda – public sector banks in India, and Legal & General – a financial and Investment Company of the UK.

• IndiaFirst Smart Save Plan: It is a unit-linked insurance plan which offers a choice of five investment fund options. The plan allows switching to the extent of 24 free switches every year (2 free per month) with a minimum amount of Rs. 5,000. Single, limited and regular payment options are available while payment modes range from single, yearly and half-yearly.

Kotak Life Insurance Limited

Being one of the fastest growing insurance providers in India, Kotak Life covers more than 20 million lives across India (as on March 31, 2018).

• Kotak Ace Investment Plan: This unit-linked plan is investment oriented and offers a choice of seven distinct fund options. The frequency of premium can be paid monthly, quarterly, half-yearly or annual. There is a choice of five policy terms – 10, 15, 20, 25 or 30 years. Anyone from 0 to 60 years can avail this plan. However, the policyholder should be of age between 18 and 75 years.

• Kotak Wealth Insurance: This unit linked insurance plan provides its investor with the alternative to use surplus funds in the form of top-up premiums, thereby providing higher additional payout at death or maturity. There is a choice of 5 policy terms – 10, 15, 20, 25 or 30 years. While the policyholder should be between 18 years and 65 years of age, the age of the life insured can be anywhere from 0 years to 65 years. Partial withdrawals are allowed after completing 5 policy years.

Max Life insurance Company Limited

Formerly known as Max New York Life Insurance Company, Max Life was established in 2000 and is headquartered at New Delhi.

• Max Life Fast Track Super Plan: This non-participating unit linked endowment plan offers 5 funds to investors with ranging risk appetites. The option of Systematic Fund Transfer and Dynamic Fund Allocation mechanisms help protect investments against market volatility. It gives flexibility to customers in choosing premium payment term and the policy term.

PNB MetLife India Insurance Company Limited

PNB MetLife India Insurance Company was established in 2001. Punjab National Bank (PNB), MetLife International Holdings LLC (MIHL), M. Pallonji and Company Private Limited, Jammu & Kashmir Bank Limited (JKB) and other private investors are the shareholders of PNB MetLife India.

• PNB MetLife Dhan Samriddhi: This plan offers a choice of choose from 6 fund options and allows 4 free switches. Partial withdrawals are allowed to the extent of 12 free withdrawals post which each withdrawal is charged Rs. 250. Funds can be withdrawn and policy surrendered any time after completion of 5 years.

• PNB MetLife Easy Super: It is a non-participating unit linked endowment plan offering sum assured to the extent of 10 times the chosen annualised premium amount. This plan is available for a period of 15-20 years and the premium-paying terms require customers to pay policy premiums for the entire length of the policy.

• PNB MetLife Smart One: This is a non-participating unit linked endowment plan is available for a period of 10-20 years, subject to the policyholder’s maximum maturity age. Premiums are to be paid once and range from a minimum of Rs. 18,000 to a maximum of Rs. 5 lakh. The sum assured amount is 5 times the single premium paid during the first policy year plus 1.25 times the single premium paid for the remaining policy years.

• PNB MetLife Smart Platinum: The unit linked insurance plan offers customers six different fund options to choose from. Premium can either be paid monthly, quarterly, half-yearly or yearly. The minimum premium amount is Rs. 30,000 under the annual premium payment mode while it is Rs. 60,000 per year for all other payment modes.

Reliance Nippon Life Insurance Company Limited

Reliance Nippon Life Insurance Company is one of the leading private sector life insurance companies in India. Being a part of Reliance Capital, this company holds a distribution network of 727 branches and over 55,492 advisors.

• Reliance Classic Plan II:  This is a non-participating unit linked endowment plan with minimum annualised premium for single pay of Rs. 75,000 and Rs. 15,000 under regular pay. The minimum and maximum age at entry is 7 years and 60 years respectively. The minimum and maximum age at maturity is 22 years and 75 years.

• Reliance Pay Five Plan: Every major component of this non-participating unit linked endowment plan has something to do with the number ‘5’. This plan offers a choice of 5 investment funds. One can start building a sizeable corpus with payment of just 5 yearly premiums, are also avail tax benefits. The premium paying term is 5 years and one can opt for partial withdrawals after the completion of 5 years of policy or after attaining 18 years of age, whichever is later.

Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer. Tax benefit is subject to changes in tax laws. *Standard T&C Apply

Let us Guide the Investors!

At PolicyBazaar, we aim towards providing profound assistance to investors regarding all ULIP plans, which will come handy when finding a most suitable ULIP. Life insurance companies have leveraged the power of the Internet and have unveiled ULIPs that can be easily bought on a click of the mouse. Online ULIPs are not only cost-efficient instruments but they also provide insurance cover during the policy term. Our intelligent system has inbuilt ULIP calculator at PolicyBazaar, which would help you in computing returns on multiple ULIP plans, thus, easing the comparison process of ULIP plans in India. Today is the time to build the foundation of a sound future. So capitalize this opportunity and start comparing ULIP plans at PolicyBazaar.